Question #72504

1. The profits from projects A and B have variances of $500, 000 and $45, 000 respectively. Which of the two projects is more risky if the expected values of the profits are $5000 and $500, respectively?
2. A project has expected risky cash flows of $90, 000 in perpetuity while the certainty equivalent cash flows are $60, 000. The risk free rate is 10%. What is the risk adjusted rate of return on the risky cash flows?
3. Should an investor invest in this project if the initial cost is $650, 000?
4. What would be the internal rate of return if the cost of the project was $600, 000?

Expert's answer

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